Dollar strengths against the Euro and the Yen

by Benny Menashe

Finotec Group Inc.

The Dollar was steady in the early trading, holding near a three-month high against the Yen, after a positive revision of the US economical data leaded investors to speculate that the Federal Reserve will raise interest rates this year. The Dollar traded at 105.35 against the Japanese currency at 7:00am GMT. US short-term interest rate futures reveal that investors believe that the Fed will keep interest rates on hold at 2 percent in June and raise them later this year. A trader from a major Japanese bank reveal Reuters that technical signals will turn bullish if the Dollar manages to break the next resistance level of 106 Yen; if this happens, the Dollar can raise to 108 and then to 110 Yen.

The jump in US bond yields and the slump in oil prices on Thursday also boosted the greenback against the Euro; the Dollar traded at 1.5532 against the Euro at 7:00am GMT. Oil prices movements have a great impact on the Dollar, as hiking oil prices usually leads to concerns that US consumers and businesses won’t be able to overcome the credit crisis. The Euro’s depreciation was also supported by the release of retail sales in Germany, Euro Zone’s strongest economy, that unexpectedly drop for a second month in April, supporting speculation that the ECB will cut interest rates in a near future. “The dollar looks strong”, said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital. “With the market turmoil calming down, people are focusing on inflation risks. Falling oil prices are positive for U.S. growth, bringing some relief to people.”

UK Consumer Confidence dropped yesterday to the lowest level since Margaret Thatcher quit the office in 1990. The Pound traded at 1.9781 against the Dollar and at 0.7845 against the Euro at 7:00am GMT. The British currency is appreciating versus the Euro on speculation policy makers will keep interest rates on hold in June at 5 percent, in order to fight inflation. However, investors believe that the Bank of England will be forced to cut interest rates until the end of the year, as the economy is showing signs of slow down; the Pound is forecasted to drop to a record low against the Euro by year-end, to 81 pence, wrote Michael Klawitter, a currency strategist at Dresdner.

Concerning economic data for today, investors will be paying attention to the release of CPI Flash Estimate y/y in the Euro Zone, which is expected to rise 0.2 percentage points, having a positive effect on the nation’s currency. Also, Canadian GDP is expected to boost the Canadian Dollar, as is forecasted to rise 0.2 percentage points from last month. To finish, US Personal Spending m/m is predicted to push the Dollar down, as is expected a drop of 0.2 percentage points from April, to 0.2 percent.